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TOUGH cooling measures and weak buyer sentiment will hit demand for residential property in Malaysia this year, according to ratings agency Moody's.

It also said the anticipation of higher interest rates and the upcoming 6 per cent goods and services tax in April will also dampen sales.

"But the magnitude of impact (of a sales slowdown) will depend on the property developers' target segment of their project launches and pricing," said Ms Jacintha Poh, assistant vice-president and analyst at Moody's.

Overall residential transactions in Malaysia have fallen from 272,669 in 2012 to 246,225 in 2013 and 122,830 in the first half of last year, the report noted. Cooling measures introduced in October 2013 - such as increasing Real Property Gains Tax rates and lifting the minimum purchase price for foreigners - will continue to hit demand, it said.

Moody's expects developers focused on residential projects in popular areas like Johor, Kuala Lumpur, Selangor and Penang will struggle to reach sales targets as homes in these places typically cost about RM1 million (S$372,000) and are aimed at high-income households or foreign investors.

Property price growth in these areas has been slowing since the end of 2013, a reflection of the impact of cooling measures.

Johor home prices were estimated to have an annual growth of 5.44 per cent in the third quarter of last year, down from 8.28 per cent in the second quarter and 10.93 per cent in the first, for example.

But demand for owner-occupied homes priced in the middle-income range is expected to remain resilient, said Ms Poh.

"While we do not expect the 6 per cent goods and services tax to deter buyers from making a purchase decision, affordability may be a concern," she added.

Moody's said Malaysia's five largest listed developers by revenue should be able to offset declining sales volumes by targeting projects at this middle-income segment or reaping contributions from overseas projects.

Malaysia's home prices have been rising faster than average incomes.

From 2001 to 2013, average prices increased at a compounded annual growth rate of 7.3 per cent compared with a 6.3 per cent increase in gross national income per labour.